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Chapter 9 - Taxation
“Nothing is certain but death and taxes”
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Criteria for Effective Taxes
1. Fair/ Equitable – few loopholes
2. Simple – easy to u-stand
3. Efficient – easy to administer and generate revenue for gov.
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2 Principles of Taxation1. Benefit principle = those who benefit should
pay in proportion to the amount of benefits they receive.
2. Ability-to-pay principle = according to income, regardless of benefits they receive
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Types of taxes1. Proportional = same % for everyone
2. Progressive = higher % for higher incomes
3. Regressive = opposite of progressive
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Federal Gov. Taxes
1. Almost ½ of their rev. comes from income tax
2. FICA (Fed. Insurance Contributions Act) = Largest source of gov. rev. - mainly pays for Social Security and Medicare (“Revolving Door” – ‘it pays for itself’)
3. Corporate income tax – from 15 to 35%*Remember, “Corporations are people too” ,
so they have to pay taxes on their ‘income’.
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Federal Gov. Taxes – other ways the fed. Gov. get revenue:
4. Excise taxes – ‘luxury’ items
5. Sin Taxes – behavior adjustment
6. Estate taxes and gift taxes
7. Customs taxes – (imports)
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State and Local Taxes
- intergovernmental revenues
- sales tax
- property tax
- income
- lottery?
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How do they collect?
• Federal gov. = IRS
• State gov. = the Tax Board– Mostly it comes out of your paycheck (it is
‘withheld’)– You will file your official tax return by April 15
• You may receive a ‘refund’ or be made to pay more, depending on how much was withheld and how much $ you made
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Federal Spending
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• Based on the ‘fiscal year’, as opposed to the ‘calendar year’.
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• Mandatory Spending– Those items that don’t need Congressional
approval. (“The money is already spent.”)
Social SecurityMedicareInterest on the National Debt
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• Discretionary Spending– Those items that require approval from
Congress from year to year• Appropriations Bill = a law that allocates money to
a particular program (goes through the traditional ‘Bill to a Law’ sequence)
National “Defense”Veterans benefits“Income Security”AgricultureTransportationEducationInternational AffairsScience/Space/Technology
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The Process:
• President & his administration come up with a proposal – called “The 2013 Budget”– Sends it to Congress
• Congress slashes, adds, amends– Sends it back to President
• President signs it – becomes the plan for expenditures for the coming year.
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Federal Debt & Deficit• The amount of money that the U.S. Gov.
spends over and above what they took in (Spending – Revenue = Deficit)
• National Debt = the total “credit card bill” that has accumulated thus far.